The $5B cash cow

MocoNews reports that the US cellular providers reached over $5 billion in revenues purely from the services sector in Q1 2007. This includes application downloads, ring tones, and other data uses. And this, ladies and gentlemen, is the cash cow of the industry.

Providers do a lot to try and get people to sign up with them. There are cell phone ads everywhere, more than most other industries other than perhaps cars. They literally give you phones too. All that to get you to sign up for a 2 or 3 years contract, and start filling up the cow. Once locked in, with your crippled phone and legal obligation to stay with them, they nickel and dime all they can. A single ring tone, wallpaper, picture transfer, will cost you. Even worse, now some providers push unwanted ads on devices. And that’s how they make their money. And they do make money.

The crazy thing is that it doesn’t have to be this way. The choice is always the same: Pay more now, but save a lot later; or get a free phone, and be stuck paying through the roof for years. Paying $200, $300 and sometimes up to $750 for a phone right away may seem like a large investment, and it is. But be sure of one thing, every cent the cell phone providers subsidize from a phone, they make back over the contract period. The unbranded phone will allow you to transfer those MP3 ring tones over Bluetooth, will have VOIP available (if the phone supports wi-fi or 3G) and will allow you to pick whatever wallpaper you want without paying your provider each time you change your mind.

I don’t know about you, but I think the cow is big enough. With my unlocked device, and pre-paid card, I pay $10 a month and only pay when I actually browse the Internet, and even then I often use wi-fi in which case I pay nothing. I can use VOIP and not have to pay a dime for calls either. And of course I can change wallpaper, and upload any MP3 that I own to use as a ring tone by using Bluetooth without cashing in either.

Now I do have to say pre-paid isn’t for everyone, and someone who needs to do a large amount of calls each month outside of any wi-fi coverage is probably better served with a contract plan, but there is something to be said for owning a device that isn’t telling you what you can and can’t do with it.